Markets Don’t Expect Much From EU Leaders’ Summit

European financial markets look set for a quiet week as traders and investors wait for the EU leaders’ summit scheduled for Thursday and Friday. Famous last words, of course, as news from Greece or Spain could easily upset the apple cart.

However, it’s already clear that summit fatigue has set in throughout the markets and that little concrete is expected to be announced. Instead, expectations are that there will be more words than action, and that disappointment will follow.

The market mood was captured perfectly early Monday in a note to customers from the market economists at the French bank BNP Paribas. Here’s how they began their summary:

What is agreed at the EU summit this week will be a key influence on market sentiment.

The meeting would have to over-deliver by a decent margin to elicit a sustained improvement in market sentiment.

A good package would be agreement on a banking union, including a pan-euro-zone supervisor, a deposit guarantee scheme and a bank resolution authority, plus permission for the ESM/EFSF to recapitalise banks directly.

Moves to lever up the ESM and EFSF or to re-engage the ECB would also be well received, especially if there were a definite plan to support yields in the secondary market.

To achieve lasting improvement, a credible roadmap to the creation of redemption bonds or eurobonds is needed.

The introduction of eurobills would be a very positive symbolic step along this route.